PROSPECTUS SUPPLEMENT
Filed Pursuant to Rule 424(b)(3)
Registration Nos. 333-108645 and 333-111135
PROSPECTUS SUPPLEMENT
Number 1
to
Prospectus dated December 18, 2003
of
HEMISPHERX BIOPHARMA, INC.
This Prospectus Supplement includes the following updated and revised
information concerning Hemispherx Biopharma, Inc.:
o Information about the placement of Debentures and related securities
to two institutional investors on January 26, 2004,
o Summary Consolidated Financial Data and
o Revised pro forma financial information
Our common stock is listed on the American Stock Exchange under the symbol HEB.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
----------
The date of this Prospectus Supplement is January 27, 2004
Recent Private Placement
On January 26, 2004, we closed a private placement with two institutional
investors of 6% senior secured convertible debentures due January 31, 2006 in
the aggregate principal amount of $4,000,000 (the "Debentures"), warrants to
purchase an aggregate of up to 790,514 shares of our common stock, 158,103
shares of our common stock (the "Shares") and Additional Investment Rights (to
purchase up to an additional $2,000,000 principal amount of Debentures
commencing in six months).
The Debentures mature on January 31, 2006 and bear interest at 6% per
annum, payable quarterly in cash or, subject to satisfaction of certain
conditions, common stock. Any shares of common stock issued to the Investors as
payment of interest shall be valued at 95% of the average closing sales price of
the common stock during the five consecutive business days ending on the third
business day immediately preceding the applicable interest payment date.
Commencing six months after issuance, we are required to start repaying the then
outstanding principal amount under the Debentures in monthly installments
amortized over 18 months in cash or, at our option, in shares of common stock.
Any shares of common stock issued to the Investors as installment payments shall
be valued at 95% of the arithmetic average Weighted Average Price (as defined in
the Debentures) of the common stock during the 10-day trading period commencing
on and including the eleventh trading day immediately preceding the date that
the installment is due.
The Debentures are convertible at the option of the Investors at any time
through January 31, 2006 into shares of our common stock. The conversion price
under the Debentures is fixed at $2.53 per share, subject to adjustment for
anti-dilution protection for issuance of common stock or securities convertible
or exchangeable into common stock at a price less than the conversion price then
in effect.
There are two classes of warrants received by the Investors; class A and
class B. The class A warrants are to acquire at any time from July 26, 2004
through July 26, 2009 an aggregate of up to 395,257 shares of common stock at a
price of $3.29 per share. The class B warrants are to acquire at any time from
July 26, 2004 through July 26, 2009 an aggregate of up to 395,257 shares of
common stock at a price of $5.06 per share. On January 27, 2005, the exercise
price of the class A and B warrants will reset to the lesser of the respective
exercise price then in effect or a price equal to the average of the daily price
of the common stock between January 27, 2004 and January 26, 2005 (but in no
event less than $2.58 per share with regard to the class A warrants and $3.54
per share with regard to the class B warrants). The exercise price (and the
reset price) under the warrants also is subject to similar adjustments for
anti-dilution protection.
We also issued to the Investors Additional Investment Rights pursuant to
which the Investors have the right to acquire up to an additional $2,000,000
principal amount of Debentures from us. The Additional Investment Rights are
exercisable commencing on July 26, 2004 (the "Trigger Date") for a period of 90
days from the Trigger Date or 90 days from the date upon which the registration
statement registering the shares issuable upon conversion of the
2
Debentures to be issued pursuant to the Additional Investment Rights is declared
effective, which ever is longer.
We entered into a Registration Rights Agreement with the Investors in
connection with the issuance of the Debentures (including any Debentures issued
pursuant to the Additional Investment Rights), the Shares and the warrants. The
Registration Rights Agreement requires that the Company register on behalf of
the Investors the Shares issued to the Investors and 135% of the shares issuable
upon conversion of the Debentures (including payment of interest thereon) and
exercise of the warrants.
By agreement between us and the holders of warrants issued in the 2003
placements, the warrants issued in those transactions will not be exercisable
until July 26, 2004 and, accordingly, the expiration dates for these warrants
have been extended by the number of days corresponding to the delay in the
ability of the holders to exercise the warrants.
3
Summary Consolidated Financial Data
In the table below, we provide you with our summary historical financial
data. We have prepared this information using our audited financial statements
for each of the five years in the period ended December 31, 2002, and our
unaudited financial statements for the nine months ended September 30, 2002 and
September 30, 2003. Operating results for the nine months ended September 30,
2003 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2003.
It is important that you read this summary historical financial data in
conjunction with our historical financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus.
(in thousands except share and per share data)
Consolidated
Statements
of Operations
Data:
Year ended December 31,
-----------------------
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
Revenues:
Clinical
Treatment Programs $ 401 $ 678 $ 788 $ 390 $ 341
License Fees -- -- -- -- 563
Income
Sale of Products -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total Revenues 401 678 788 390 904
Cost & Expenses:
Production Costs
Research &
Development 4,562 4,737 6,136 5,780 4,946
General &
Administrative(1) 3,753 8,721 3,695 3,412 2,015
Total Cost and
Expenses 8,315 13,458 9,831 9,192 6,961
Interest and
Other Income 590 482 572 284 103
Interest Expense -- -- -- -- --
Other Expense -- -- (81) (565) (1,470)
Net Loss $(7,324) $(12,298) $(8,552) $(9,083) $(7,424)
Basic and Diluted
Loss Per Share $ (.32) $ (.47) $ (.29) $ (.29) $ (.23)
Basic and
Diluted
Weighted
Average Shares
Outstanding 22,724,913 26,380,351 29,251,846 31,443,208 32,095,776
Other Cash
Flow Data
Cash Used in
Operating
Activities $(5,853) $(6,990) $(8,074) $(7,281) $(6,409)
Capital
Expenditures (151) (251) (171) -- --
Pro Forma for
Asset Acquisition
Nine Months Ended Nine
September 30, Year ended Months
------------------ December 31, Ended
2002 2003 2002(4) 2003(4)
---- ---- ------- -------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenues:
Clinical
Treatment Programs $ 263 $ 118 $ 341 $ 118
License Fees 563 -- 563 --
Income
Sale of Products -- 236 1,926 478
---------- ---------- ---------- ----------
Total Revenues 826 354 2,830 596
Cost & Expenses:
Production Costs 224 1,505 583
Research &
Development 3,732 2,574 6,428 2,763
General &
Administrative(1) 2,447 2,550 3,921 2,844
Total Cost and
Expenses 6,179 5,348 11,854 6,190
Interest and
Other Income 90 61 103 61
Interest Expense -- (5,795) (3,160) (4,945)
Other Expense (750) (0) (1,470) (0)
Net Loss $(6,013) $(10,728) $(13,551) $(10,481)
Basic and Diluted
Loss Per Share $ (.19) $ (.31) $ (.40) $ (.29)
Basic and
Diluted
Weighted
Average Shares
Outstanding 32,083,957 34,210,987 33,641,776 35,671,997
Other Cash
Flow Data
Cash Used in
Operating
Activities $(4,927) $(4,926)
Capital
Expenditures -- --
4
Balance Sheet Data:
Pro Forma Adjustment
December 31, September 30, For Asset Acquisitions
------------ ------------- ----------------------
1998 1999 2000 2001 2002 2002 2003(2)(3) 2003(4)(5)
---- ---- ---- ---- ---- ---- ---------- -----------
(unaudited) (unaudited) (unaudited)
Working Capital $12,587 $ 9,507 $ 7,550 $ 7,534 $2,925 $3,484 $ 5,993 $ 5,630
Total Assets 16,327 14,168 13,067 12,035 6,040 6,863 11,992 13,193
Shareholders'
Equity 15,185 12,657 11,572 10,763 3,630 4,983 7,360 7,573
Book value per
share(6) .20 .20
(1) General and Administrative expenses include stock compensation expense
totaling $795, $4,618, $397, $673, $132, $132 and $0 for the years ended
December 31, 1998, 1999, 2000, 2001, and 2002 and for the nine months
ended September 30, 2002 and 2003, respectively.
(2) For information concerning recent acquisitions of certain assets of
Interferon Sciences, Inc. ("ISI") and related financing see notes 8 and 9
to our consolidated financial statements for the nine months ended
September 30, 2003 and notes 1 and 16 to our consolidated financial
statements for the year ended December 31, 2002, contained elsewhere in
this prospectus.
(3) In accounting for the March 12, 2003 and July 10, 2003 ($5,426,000 each)
issuances of 6% Senior Convertible Debentures and related embedded
conversion features and warrant issuances, we recorded debt discounts of
approximately $9.0 million, which in effect reduced the carrying value of
the debt to $1.3 million. Excluding the application of related accounting
standards, our debt outstanding as of September 30, 2003 totaled
approximately $4.8 million. For additional information refer to note 9 to
our consolidated financial statements for the nine months ended September
30, 2003 and note 16 to our consolidated financial statements for the year
ended December 31, 2002, contained elsewhere in this prospectus.
(4) The unaudited Pro Forma consolidated statements of operations data for the
year ended December 31, 2002 and the nine months ended September 30, 2003
have been prepared giving effect to the acquisition of certain assets of
ISI and the related funding of the transaction, by our March 12, 2003 6%
senior convertible debentures, as if they occurred on January 1, 2002.
5
The unaudited Pro Forma consolidated balance sheet data has been prepared
as if the second portion of the acquisition of certain assets of ISI had
occurred on September 30, 2003.
The unaudited pro-forma financial statements give effect to the second
asset acquisition agreement with ISI irrespective of the fact that it
remains unconsummated and is contingent on the ISI stockholders approving
the transaction. For additional information, see the pro forma
consolidated financial statements contained elsewhere in the prospectus.
(5) Does not reflect the issuance of the October 29, 2003 $4,142,357 6% senior
convertible debentures resulting in net cash proceeds to us of $1.7
million which are non-inclusive of approximately $1.6 million of proceeds
held back contingent upon us acquiring of ISI's facility.
(6) Book value per share is computed by dividing shares outstanding into
shareholders' equity as of the above dates.
6
Hemispherx Biopharma, Inc.
Unaudited Pro forma Financial Information.
Consolidated Statements of Operations for the year ended December 31, 2002 and
for the nine months ended September 30, 2003.
Consolidated Balance Sheet as of September 30, 2003.
The unaudited pro-forma adjustments give effect to the second agreement with ISI
irrespective of the fact that the second acquisition remains unconsummated and
is contingent on the Company receiving the appropriate governmental approval for
the real estate to be acquired and ISI stockholders approving the transaction.
Hemispherx Biopharma, Inc. and Subsidiaries
Year ended December 31, 2002
(in thousands, except per share data)
(4) PRO FORMA
(3) PRO FORMA AS FURTHER
(1) (2) PRO FORMA PRO FORMA FURTHER ADJUSTED
HEMISPHERX INTERFERON ADJUSTMENTS AS ADJUSTED ADJUSTMENTS FOR
BIOPHARMA, SCIENCES, FOR FIRST FOR FIRST FOR SECOND SECOND
INC. AND INC. AND ASSET ASSET ASSET ASSET
SUBSIDIARIES SUBSIDIARY ACQUISITION ACQUISITION ACQUISITION ACQUISITION
------------ ---------- ----------- ----------- ----------- -----------
2002 2002
---- ----
Revenues:
Sales of product $ -- $ 1,926 $ $ 1,926 $ $ 1,926
Clinical treatment programs 341 341 341
License fee income 563 563 563
------- ------- ------- -------- ------- --------
904 1,926 -- 2,830 -- 2,830
------- ------- ------- -------- ------- --------
Costs and expenses:
Costs of goods sold/idle
Production costs -- 1,482 (37) (a) 1,445 60 (e) 1,505
Research and development 4,946 1,514 (39) (a) 6,421 7 (e) 6,428
General and administrative 2,015 1,818 (34) (a) 3,915 6 (e) 3,921
116 (c)
------- ------- ------- -------- ------- --------
Total cost and expenses 6,961 4,814 6 11,781 73 11,854
------- ------- ------- -------- ------- --------
Interest and other income 103 7 (7) (a) 103 103
Interest and related expenses (386) 386 (a) (1,551) (1,609) (d) (3,160)
(1,551) (b)
Investments in
unconsolidated affiliates (1,470) (1,470) (1,470)
Gain on sale of state net
operating loss carryovers 528 (528) (a) -- --
------- ------- ------- -------- ------- --------
Net loss $(7,424) $(2,739) $(1,706) $(11,869) $(1,682) $(13,551)
------- ------- ------- -------- ------- --------
Basic and diluted loss
per share $ (0.23) $ (0.36) $ (0.40)
------- -------- --------
Basic and diluted weighted
Average common shares
outstanding 32,086 487 32,573 1,069 33,642
------- ------- -------- ------- --------
See accompanying notes to consolidated statement of operations
7
NOTES TO UNAUDITED PROFORMA
CONSOLIDATED STATEMENT OF OPERATIONS
The following notes describe the column headings in the unaudited pro forma
consolidated statement of operations and the pro forma adjustments that have
been made to this statement:
(1) Reflects the audited consolidated historical statement of operations
of Hemispherx Biopharma, Inc. and subsidiaries for the year ended
December 31, 2002.
(2) Reflects the audited consolidated historical statement of operations
for ISI for the year ended December 31, 2002.
(3) Reflects pro forma adjustments relating to the first acquisition of
certain assets of ISI and the related funding as follows:
(a) Adjustments to reflect the following:
Production Cost. Production cost related to sales of product
by ISI are based on ours cost of inventory purchased from ISI
in the First Asset Acquisition. A portion of our total cost of
the net assets was allocated to inventory in accordance with
FASB 141.
8
Interest Expense and Interest Income. ISI debt was not assumed
by us. As a result, interest on the debt has been eliminated.
Depreciation. The ISI building is being acquired in the Second
Asset Acquisition. Depreciation expense related to the
building has not been included for the First Asset Acquisition
adjustments. The depreciation of the building, based on the
cost of the Second Asset Acquisition, is recorded in entry
4(e) below.
Sale of State Net Operating Loss Carryover. The gain on the
sale by ISI of state tax losses has been eliminated.
Production
Cost R&D G&A Other Total
--------------------------------------------------------------
Inventory $(287) $(287)
--------------------------------------------------------------
Interest income $ (7) (7)
--------------------------------------------------------------
Interest expense 386 386
--------------------------------------------------------------
Depreciation 324 $39 $34 397
--------------------------------------------------------------
Sale of State net
operating
loss carryover (528) (528)
--------------------------------------------------------------
--------------------------------------------------------------
Total $ 37 $39 $34 $(149) $(39)
--------------------------------------------------------------
(b) Increase in interest expense resulting from the issuance of
$3.1 million of 6% senior convertible debentures. Interest
expense is inclusive of deferred interest charges resulting
from the Company recording debt discounts of $2.1 million in
recognition of fair values of detachable warrants, contingent
conversion features original issued discount and settlement
costs recorded in connection with the debenture offering.
(c) Increase in general and administrative costs of resulting from
the recognition of 6% royalty charges on the net sales of the
acquired ALFERON N injection product.
(4) Reflects pro forma adjustments relating to the second acquisition of
certain asset of ISI and the related funding as follows:
(d) Increase in interest expense resulting from the issuance of an
additional $1.6 million 6% senior convertible debentures and
additional detachable warrants to purchase 1,000,000 shares of
common stock at $2.40 per share. Interest expense is inclusive
of deferred interest charges resulting from the Company
recording of additional debt discounts of approximately $ 2.8
million in recognition of fair values of additional detachable
warrants, contingent conversion features, original issued
discount and additional settlement costs recorded in
connection with the debenture offering.
(e) Adjustments reflect depreciation expense relating to the
acquired building as result of the second acquisition of
certain assets of ISI.
9
Hemispherx Biopharma, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Statement of Operations
Nine Months ended September 30, 2003
(in thousands, except per share data)
(4) PRO FORMA
(3) PRO FORMA AS FURTHER
(1) (2) PRO FORMA PRO FORMA FURTHER ADJUSTED
HEMISPHERX INTERFERON ADJUSTMENTS AS ADJUSTED ADJUSTMENTS FOR
BIOPHARMA, SCIENCES, FOR FIRST FOR FIRST FOR SECOND SECOND
INC. AND INC. AND ASSET ASSET ASSET ASSET
SUBSIDIARIES SUBSIDIARY ACQUISITION ACQUISITION ACQUISITION ACQUISITION
------------ ---------- ----------- ----------- ----------- -----------
2003 2003
---- ----
Revenues:
Sales of product $ 236 $ 242 $ -- $ 478 $ $ 478
Clinical treatment programs 118 118 118
-------- ------ ------- -------- ----- --------
Total Revenues 354 242 596 596
-------- ------ ------- -------- ----- --------
Costs and expenses:
Costs of goods sold/idle
Production costs 224 267 47 (a) 538 45 (d) 583
Research and development 2,574 176 (7) (a) 2,743 6 (d) 2,749
General and administrative 2,550 963 (675) (a) 2,838 6 (d) 2,844
Royalty Expense 29 (c) 29 29
-------- ------ ------- -------- ----- --------
Total cost and expenses 5,348 1,406 (606) 6,148 57 6,205
-------- ------ ------- -------- ----- --------
Interest and other income 61 13 (13) 61 61
Interest and related expenses (5,795) (274) 274 (a) (5,795) 847 (c) (4,948)
Metacine Settlement 1,550 (1,550) (a)
Service fee income 451 (451) (a) --
Other income 14 (14) (a) --
Bulk sale of Alferon inventory 1,149 (1,149) (a) --
-------- ------ ------- -------- ----- --------
Net loss $(10,728) $1,739 $(2,297) $(11,286) $(790) $(10,496)
-------- ------ ------- -------- ----- --------
Basic and diluted loss
per share $ (.31) $ (.32) $ (.29)
-------- -------- --------
Basic and diluted
weighted
Average common shares
outstanding 34,211 35,185 487 35,672
See accompanying notes to consolidated statement of operations
10
NOTES TO UNAUDITED PROFORMA
CONSOLIDATED STATEMENT OF OPERATIONS
The following notes describe the column headings in the unaudited pro forma
consolidated statement of operations and the pro forma adjustments that have
been made to this statement:
(1) Reflects the unaudited consolidated historical statement of
operations of Hemispherx Biopharma Inc. and subsidiaries for the
nine months ended September 30, 2003.
(2) Reflects the unaudited consolidated historical statement of
operations for ISI for the period ended September30, 2003.
(3) Reflects pro forma adjustments relating to the first acquisition on
March 11, 2003 of certain assets of ISI and the related funding as
follows:
(a) Adjustments to reflect the following:
Production Cost. Production cost related to sales of product
by ISI are based on our cost of inventory purchased from ISI
in the First Asset Acquisition. A portion of our total cost of
the net assets was allocated to inventory in accordance with
FASB 141.
Interest Expense and Interest Income. ISI debt was not assumed
by us. As a result, interest on the debt has been eliminated.
Depreciation. The ISI building is being acquired in the Second
Asset Acquisition. Depreciation expense related to the
building has been included for the First Asset Acquisition
adjustments. The depreciation of the building, based on the
cost of the Second Asset Acquisition, is recorded in entry
4(e) below.
Service fee income paid to ISI by us, the gain on the bulk
sale of the Alferon inventory to us and the Metacine
settlement have been eliminated.
General and administrative expenses beyond March 11, 2003 have
been eliminated.
Production
Cost R&D G&A Other Total
--------------------------------------------------------------
Inventory $(109) $(109)
--------------------------------------------------------------
Interest expense $274 274
--------------------------------------------------------------
Interest income (13) (13)
--------------------------------------------------------------
Depreciation 62 $7 $ 7 76
--------------------------------------------------------------
Service fee income (451) (451)
--------------------------------------------------------------
Other income (14) (14)
--------------------------------------------------------------
Bulk sale of
Alferon inventory (1,149) (1,149)
--------------------------------------------------------------
G&A after
March 11, 2003 668 668
--------------------------------------------------------------
Metacine Settlement (1,550) (1,550)
--------------------------------------------------------------
Totals $ (47) $7 $675 $(2,903) $(2,268)
--------------------------------------------------------------
11
(b) Increase in general and administrative costs resulting from
the recognition of 6% royalty charges on the net sales of the
acquired ALFERON N Injection product.
(4) Reflects pro forma adjustments relating to the second acquisition of
certain asset of ISI and the related funding as follows:
(c) Decrease in interest expense for the effect of the conversion
of $4.4 million of the 6% senior convertible debentures during
the nine months ended September 30, 2003 as it relates to
write offs of debt discounts recognized in connection with the
debenture offering for which we have given effect to on pro
forma basis as if it had occurred during the year ended
December 31, 2002.
(d) Adjustments reflect depreciation expense relating to the
acquired building as result of the second acquisition of
certain assets of ISI.
12
Hemispherx Biopharma, Inc. and Subsidiaries
Unaudited Pro Forma Consolidated Balance Sheet
PRO FORMA
(2) AS
September 30, 2003 (1) PRO FORMA ADJUSTED
(in thousands) HEMISPHERX ADJUSTMENTS FOR
BIOPHARMA, FOR SECOND SECOND
INC. AND ASSET ASSET
SUBSIDIARIES ACQUISITION ACQUISITION
------------ ----------- -----------
ASSETS
Current Assets:
Cash and cash equivalents $ 5,061 $ 5,061
Other receivables 141 141
Inventories net of reserves 2,545 2,545
Prepaid and other current assets 309 309
--------- ------- ---------
Total current assets 8,056 8,056
--------- ------- ---------
Property, plant and equipment, net 112 2,269 2,381
Patent and trademark rights, net 1,076 1,076
Investments in unconsolidated affiliates 408 408
Deferred financing costs 270 270
Deferred acquisition costs 1,068 (1,068) --
Advance receivable 951 951
Other assets 51 51
--------- ------- ---------
Total assets $ 11,992 $ 1,201 $ 13,193
========= ======= =========
LIABILITIES
Current liabilities:
Accounts payable $857 $ 363 $ 1,220
Accrued expenses 857 857
Current portion of long term debt 349 349
--------- ------- ---------
Total current liabilities 2,063 363 2,426
--------- ------- ---------
Long term debt net of current portion 969 969
Redeemable common stock 1,600 625 2,225
Stockholders' equity :
Common stock 38 38
Additional paid-in capital 117,145 213 117,358
Accumulated deficit (109,802) (109,802)
Treasury stock (21) (21)
--------- ------- ---------
Total stockholders' equity 7,360 213 7,573
--------- ------- ---------
Total liabilities and stockholders' equity $ 11,992 $ 1,201 $ 13,193
========= ======= =========
See accompanying notes to consolidated balance sheet
13
NOTES TO UNAUDITED PROFORMA
CONSOLIDATED BALANCE SHEET
The following notes describe the column headings in the unaudited pro-forma
consolidated balance sheet and the pro forma adjustments that have been made to
this balance sheet:
(1) Reflects the unaudited consolidated historic balance sheet of
Hemispherx Biopharma Inc. and subsidiaries as of September 30, 2003.
(2) Reflects pro forma adjustments for the second acquisition of certain
assets of ISI totaling $2.2 million and the assumption of certain
obligations, including those settled via the issuance of shares of
the Company's common stock. A portion of the common shares totaling
$.6 million issued to ISI were redeemable and are reflected as such.
As a result of the agreements, the following table summarizes the estimated fair
values of the assets and liabilities assumed at the acquisition date. (AMOUNTS
IN THOUSANDS)
Second Acquisition
------------------
Cost of Building and Equipment :
487,026 shares to ISI (to be issued) $ 760
581,761 shares to Creditors (issued on 6/2/03) 907
Assumed Liability for Tax Liens 602
------
Total Cost of Building and Equipment $2,269
======
The issued shares were valued at $1.56 per share which was the closing price of
our shares on the American Stock Exchange as of March 12, 2003.
14